Neutral Bandhan Bank Ltd. For Target Rs.190 - Motilal Oswal Financial Services
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CEO announces retirement upon term end
Mr. Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank (BANDHAN), has announced his plan to retire from the bank upon the completion of his current term on 9th Jul’24. The bank’s top management team hosted an analyst call to discuss the current developments and the outlook going forward. Here is our view on the announcement:
Board to initiate CEO search process
Mr. Ghosh’s resignation surprised markets as the board had recently approved his name for another term and subsequently recommended him to the RBI for approval. The bank will now have to start the process of succession planning before Mr. Ghosh’s term ends on 9th Jul’24 and submit the shortlisted names to the RBI for approval; this may entail the evaluation of external candidates as well.
Business recovery may be prolonged; remain watchful on audit report outcome
BANDHAN has witnessed frequent changes in its top leadership team recently. Mr. Ghosh’s announcement has come at a time when the bank has just plugged the gaps in key leadership roles and is looking at a sustainable recovery in FY25E. The bank has recently hired Mr. Rajinder Kumar Babbar as ED & Chief Business Officer; Mr. Ratan Kumar Kesh as ED and COO; Mr. Santosh Nair as Head of Consumer Lending and Mortgages; and Mr. Rajeev Mantri as CFO. The MD's resignation at this juncture may delay the recovery in underlying business and earnings. This will also keep investors watchful of the bank's growth and profitability. Additionally, the outcome of the CGFMU audit remains another near-term overhang.
Valuations and view:
We believe BANDHAN’s strategy to diversify away from the microfinance segment, focus on restoring asset quality, and pursue geographical diversification is in the right direction to ensure long-term sustainability. But the decision of Mr. Ghosh to step down and assume a more strategic role at the holding company has come as a negative surprise. BANDHAN has already witnessed several changes in its top leadership team over the recent period, and CEO succession at this time becomes altogether more critical when several members of the top team are fairly new to the bank. We remain watchful the management transition and the banks execution capability as it focuses on continued diversification of loan book while improvement in asset quality is expected to drive earnings. We maintain our Neutral rating on the stock with a TP of INR190 (based on 1.1x FY26E BV).
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SEBI Registration number is INH000000412
